Sending invoices, categorizing them, and filing or claiming taxes — these are all inevitable tasks of any Accounts Payable or Accounting department.
And although one of the big topics in finance is digital transformation, such paper-based processes, particularly when it comes to invoice handling, are outdated, tedious, and filled with errors.
So What Exactly Is an Invoice?
The definition of an invoice is a dated and addressed list of goods or services, which includes information such as the total amount and taxes.
Many companies are still using paper invoices, and this results in a spectrum of problems, such as processing effort, errors, etc.
Also, paper invoices may be misfiled, lost, or can fade, and every year, staff need to spend time going through old documents for audits.
Digitized vs Electronic Invoice
It’s important to keep in mind that digitized invoices are not the same as e-invoices.
Regarding this topic, many online sources have created some confusion around the correct meaning of the various types of invoices, despite them being fundamentally different.
The source of a digitized invoice could be a scanned copy or image of a paper invoice or a PDF copy of an invoice. The digitization process extracts the relevant data from these invoices and produces a digitized invoice. This is essentially a structured form of invoice data that can be easily used for processing.
An e-invoice is an invoice that is issued, received and processed electronically. This typically contains data from the supplier in a structured format that the buyer’s financial system can automatically recognize.
The key difference is seen at the point of origination of the invoice. The e-invoice is a set of structured data ready for processing from the start. The digitized invoice starts off as a paper invoice which is scanned, photographed or in PDF form.
Today, it’s still common practice that across industries, companies of all sizes send out paper invoices and do time-consuming bookkeeping.
According to IMA, (Institute of Management Accountants), 28% of companies take 10–15 days to process a single invoice. And based on a study by Ardent, best in class performers process a single invoice within 3.5 days while the majority of companies will take 12 days to process a single invoice.
So how does this manual process actually work? There are actually two different ways companies can go about it.
First, companies send invoices to the suppliers. The recipient can make a copy or attach some notes to the invoice prior to sending it to AP.
After reviewing the invoice, Accounts Payable needs to determine who should approve the invoice and if there are any discrepancies that require resolution.
At this point, the staff will also attach notes, make copies, and the invoice is then sent for review and approval.
Afterward, the approved invoice is returned to AP, who then enters it into an accounting system.
Finally, the payment to the supplier is scheduled, and the paper record is stored.
With the proliferation of ERP systems and accounting systems that help with AP workflows, we can quite confidently say that more companies are moving towards automation. The second approach to invoice processing will leverage these technologies.
Upon the arrival of an invoice, the Accounts Payable staff manually input the invoice into an ERP or accounting system. The ERP or accounting system facilitates the approval and review process.
While this a more efficient process than the one described earlier, there is still the need to manually key in an invoice. This is where companies face the challenge of bottlenecks and manual efforts spent on an activity that does not really add value.
The Automated Process
For many businesses, one of the first ways to start challenging this manual process is through invoice digitization.
While going completely paperless is the ultimate goal, in the foreseeable future, businesses – especially small and medium enterprises – are going to be dealing with paper invoices. Even scanned copies or images of invoices still require a man in the loop to decipher them and enter them into a system for processing.
This is where digitization of invoices can help remove the inefficiency of manual work. Invoice digitization can have a fast, direct and measurable impact on many processes such as the invoice processing itself, but also compliance, security, relationships with external and internal suppliers, improved operational planning, and the reduction of costs.
As such, a growing number of organizations are considering the benefits of invoice digitization. And the goals are not surprising: cost reduction, greater speed, and fewer errors.
A study recently conducted by APQC to measure AP process productivity has determined the average cost to process an invoice for top, median, and bottom performing companies.
“Of the 1,480 organization reporting data on this measure to APQC’s database, the bottom 25% are spending USD$10 or more per invoice processed. The best performers — those who rank among in the top 25 percent on this measure — can do the same task at a cost of USD$2.05 per invoice or less.
At the median are the organizations spending USD$5.78 to process an invoice or a bit more than double what the best-performing organizations spend to perform the same process.”
According to the study, the need for manual intervention is the main factor that drives up the cost of invoice processing for the bottom performing companies.
Of course, there isn’t one exact figure to give us the cost of manual invoices.
Various other experts, like Sterling Commerce, have found that the average cost of a paper invoice can range anywhere between $12 to $30.
The Accounts Payable Network, via Beanworks, highlights that the average cost to process a single invoice is closer to $15. However, companies with a more complex AP process can expect costs to peak at nearly $40 per invoice.
The experts listed above have all agreed that reducing the manual handling of invoices will significantly reduce costs. Sterling states that fully-automated invoices cost just $3.50 per invoice to process.
Concur notes that automation “delivers an average of 29% reduction in invoice processing costs, which can translate to $300,000 per year for an organization that processes up to 10,000 invoices per month.”
Regardless of the exact figure, it doesn’t take a lot of data to realize that manually processing invoices is an expensive matter.
Understanding the Benefits of Invoice Digitization
You Can Say Goodbye to Slow, Manual Tasks
In a study by IMA, some of the top goals, the AP department has set up for invoice processing are faster processing times, efficient managing large invoice volume, and reducing invoice processing costs.
So if you run a business with a large volume of recurring invoices, invoice digitization becomes a great solution to streamline your workflow.
In Singapore, local SMEs surveyed spend 168 working days on admin tasks, which costs them SGD $160,000 a year, far higher than the average of SGD $80,000 spent by SMEs globally.
Conducted by Plum Consulting, the research highlights that an increase in productivity of as little as “5% in Singapore could lead to an increase in GDP of $8.7 billion.” This could be partially achieved through the reduction of time spent on administrative tasks.
As such, small business owners who deal with invoices on a monthly basis could improve this area of business operation through agile solutions that make it much easier to automate and systematize this process.
When businesses automate these routine tasks, staff will be able to free up their time to focus on activities that can offer higher value to the company and directly contribute to the bottom line.
You Can Export Expenses Directly into Your Accounting Software
Nobody likes to do work twice, and because handling invoices is a big part of your accounting process, it’s important to keep invoice processing and accounting connected to each other.
When you use an invoice digitization solution to digitize invoices, it’s easier than ever to connect it to your accounting software and to import invoice data seamlessly. This will allow companies to have a fully digital booking process for invoices.
To recap, these are the benefits of digitizing and automatically processing such documents:
1. Faster processing and validation flow with instant access to digital images of the scanned documents
2. Automation of non-value added tasks (data entry, error recovery, reconciliation, etc)
3. Comprehensive end-to-end tracking of documents
4. The standardization of operational flows
5. More accurate audits and reporting
Technology is changing the way invoice digitization and processing are done.
Paper invoices, scanned copies, and images of invoices all require manual efforts to facilitate processing. But SaaS software that incorporates OCR and machine learning can help in the digitization of invoice, effectively eliminating the need for manual work.
Processes that used to take hours to complete can now take minutes. As such, data quality can dramatically increase thanks to solutions that allow digitization and automation.
And with so many hours saved, you can finally spend more time on other business growth activities.